US employment data released on Friday once again illustrates that this economic recovery continues to show signs of faltering. Behind an upturn fueled by steroids, with a stock market galvanized under the direct intervention of central banks and a so-called real economy fueled by government support, there is growing unease.
It has been written that the economic rebound since May is testament to the effect of pent-up demand. We are still in Canada at 94% of the pre-pandemic employment level, at 92% of the economic activity. Unemployment in the United States is hanging on to historic recession levels. But on the stock market, the benchmark S&P 500 has just ended another week of bullish, with a weekly gain of 1.5% inflating its advance since the beginning of the year to 3.6% and relegating to oblivion its correction of some 34% between February and March.
It has been said that this stall is explained by the weight of the tech giants, which easily monopolize 40% of the capitalization of the S&P 500. Moreover, the Nasdaq is up 23% since the beginning of the l year when the Russell 2000, representative of small companies, is down 7.7%. In his September market review, René Julien, director of investments at private manager Blue Bridge, said: “Let’s eliminate Facebook, Amazon, Netflix, Microsoft, Apple and Alphabet. Since the start of the year, these six titles have posted an impressive increase of 56.6% [au 31 août]. Still, the other 494 names in the S&P saw a 1.4% drop. “
In its reading on the health of defined benefit pension plans released this week, Mercer reported that Canadian pension funding levels continued to rise in the third quarter, propelled by the stock market. The performance of a typical balanced portfolio of a plan would have gained 3% in the third quarter. Thus, the solvency ratio fell from 101% at the end of June to 107% at the end of September, “even taking into account that actuarial liabilities are valued at today’s very low interest rates. “. It still remained below the 112% measured at the start of 2020.
In addition to the fear of a double-dip recession, several risks loom, “including the outcome of the US election and the possibility of protracted litigation and instability, the impact of the resurgence of the virus on economic activity and when the vaccine arrives and how effective it is. All of these factors could generate a lot of volatility in the fourth quarter of 2020 and beyond, ”says Mercer, who calls the current level of uncertainty“ unprecedented ”.
Another source of discomfort, the total number of insolvency cases in Canada fell by 2.4% between July and August, says the Office of the Superintendent of Bankruptcy (OSB). It thus resumed its downward march observed during the first months of the pandemic, interrupting a progression measured in June and July. However, before the official start of the pandemic, observations showed an 8.4% increase in the total number of cases between the first quarters of 2019 and 2020. “It is impossible to know exactly the extent of the problem. impact of the pandemic […] But the situation promises to be difficult, especially as the financial support measures decrease or end, “the Canadian Association of Insolvency and Restructuring Professionals has warned more than once.
In statistics from the Financial Consumer Agency of Canada, as of September 4, federally regulated institutions had 771,000 deferrals of mortgage payments, 128,000 deferrals of loan payments, 124,000 on lines of credit, 618 000 on credit cards (after deducting the approximately 17,000 refused deferral requests) and 307,000 deferred car loan payments.
To be continued.